The FTSE 100 continues to outpace America’s Dow Jones Industrials, NASDAQ and S&P 500 indices in 2025, as it stands near all-time highs of its own, despite nagging worries over the UK’s economic and political outlook, the possible impact of American tariffs upon global growth and ongoing military conflict in both Eastern Europe and the Middle East.
The prospect of lower interest rates from the Bank of England, should the rate of inflation start to recede again, is one possible argument in favour of UK equities. Investors may also be seeking to diversify away from the all-conquering US market, where an increased reliance upon a handful of AI-related stocks, an apparently capricious White House and historically lofty valuations are all potential concerns. Dollar weakness may also be focusing the minds of those with portfolios that have substantial US exposure.
The UK stock market has long been less highly valued than its American counterpart, for a multiplicity of reasons, but the gap is still high by historic standards. The USA trades on 25 times forward earnings for 2025, according to research from S&P, while aggregate consensus analysts’ forecasts for the FTSE 100’s constituents put the British benchmark on 15.4 times.
However, that multiple is not far off long-term averages for the FTSE 100, thanks to its march to new all-time peaks, and that capital gain, combined with further modest downgrades to dividend payment estimates, means the forward yield is also less attractive than before, at some 3.3% for 2025. That said, share buybacks continue to supplement that figure quite handily.
AJ Bell investment director Russ Mould comments: “FTSE 100 constituents have already declared buybacks worth £50.9 billion for this year, to leave them in with a shot of surpassing the all-time high of £58.3 billion set in 2024.
“Adding together the forecast dividend total of £79.4 billion to the planned buybacks, and a special dividend from Admiral, gives a total cash return of £130.4 billion, some 5.5% of the FTSE 100’s total £2.4 trillion stock market valuation. That cash yield beats inflation, the 10-year gilt yield and the Bank of England base rate which, on balance, still seems set to go lower before it goes higher once more.
“Merger and acquisition activity also continues to top up the pot for investors, to perhaps emphasise the UK’s credentials as a source of value once more, at least in relative terms. A predator is yet to circle a FTSE 100 member in 2025, but buyers of UK assets have tabled bids worth a total of £25 billion already this year, after £49 billion-worth of successful approaches in 2024. Takeover deals can therefore also add to the total return from the UK equity market overall.
“This matters, if you believe the old adage that bull markets only end when the money runs out, because investors are currently receiving more in cash than they are being asked to pay out, given the relatively paucity of new floats and the limited number of big cash raisings. Data from the London Stock Exchange group states that companies have tapped investors for just £4.7 billion to date in 2025, via either primary or secondary offerings across the Main Market and AIM.”
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